New FICO score will help more people get access to credit, banking pros say

“We see that consumers who don’t bounce checks or let their accounts slip into negative territory tend to be better credit risks,” said FICO.
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By Martha C. White

Starting next year, Americans will be able to use a new kind of credit score to prove themselves to lenders, even if they don’t have a history of making on-time payments on a car loan, mortgage, or credit card.

“There’s long been a real interest among the banks to find a way to assign a credit score to folks who have never taken out a loan, so there’s a lot of work that’s being put into finding some way to predict the creditworthiness of folks who have very little credit,” said Matt Schulz, chief industry analyst at CompareCards. FICO parent company Fair Isaac Corporation announced Monday a new model called the UltraFICO Score, which will augment traditional metrics of credit risk with voluntarily offered information from bank statements, like evidence of saving and on-time payment transactions. When it debuts in a pilot program next year, credit experts say the UltraFICO score will improve access to credit for people with so-called “thin files” who have little, if any, traditional credit history.  “UltraFICO helps lenders gain deeper insights into the credit risk of a prospective customer through a more comprehensive understanding of the consumer’s financial profile,” said David Shellenberger, senior director of scores and predictive analytics at FICO. “As uncertainty around future consumer credit risk is reduced, a lender can do a better job matching the right credit offer to the consumer.”  Banking experts agreed. “More data produces better loans,” said Michael Moebs, economist and CEO of economic research firm Moebs Services. “The expansion of the consumer’s cash management detail in UltraFICO will open up the expansion of credit to those who do not have to have security to reduce risk, but have the cash to reduce risk.”

FICO’s Shellenberger said that giving lenders visibility into how people manage their bank accounts can be a good proxy for how they manage their finances in general.

“We see that many of the predictive characteristics in our model reflect the experience that a consumer is able to demonstrate in managing their financial affairs,” he said. For instance, customers who don’t overdraw their accounts are demonstrating positive money management traits even if they haven’t taken out traditional loans in the past.

“We see that consumers that don’t bounce checks or let their accounts slip into negative territory tend to be better credit risks,” Shellenberger said.